Puerto Rico Seeks A Bailout, But Congress Must Say ‘No’

A government bailout can come in many forms — from direct federal subsidies to trade restrictions on your competitors.

In the case of Puerto Rico, government officials are trying to bail out the island by enacting “super-bankruptcy” legislation, allowing the big-spending territory to escape its debt obligations. But as Milton Friedman once quipped, “There is no such thing as a free lunch.”

Despite having only 3.5 million people, the island owes $73 billion in government debt — $37 million of that has come due and the government says it cannot be paid. As Peter Ferrara notes, “With 12.5 percent unemployment, the island’s population is declining, down 5 percent in the last five years. Those leaving are the most productive professionals, taking their incomes and tax payments with them.”

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Keep in mind the liberals on “Bernie Sanders Island,” have yet to even try reforming their government spending programs, their welfare system, their tax system or their labor system, which tips the scales in favor of union bosses. They want Washington politicians to pass “super bankruptcy” protection to allow them to avoid paying what they owe.

Late last year, it appeared House Speaker Paul Ryan was ready to give them what they demanded. House Minority Leader Nancy Pelosi (D-Calif.) suggested Ryan would acquiesce to their demands. But then conservatives said “no way.”

The House Republican Study Committee released an official statement demanding economic reforms before any bankruptcy legislation be considered by the House. It issued a statement declaring: “The RSC opposes granting access to Chapter 9 bankruptcy for Puerto Rico or access to similar forced restructuring of debt. The RSC does support enacting pro-growth reforms that would alleviate the burden that current federal policies place on the territory.”

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The current economic and financial crisis in Puerto Rico, and the requests for Chapter 9 bankruptcy protection by the Commonwealth’s government, have lead to a fierce debate over the issue in Congress. The Obama Administration favors restructuring of debts and bankruptcy protection.

“Puerto Rico’s mounting fiscal problems are the result of poor management and unsustainable policies enacted by local government and compounded by ill-conceived federal policies that hamstring the island’s economy,” RSC Chairman Bill Flores (R-Texas)said in a statement. “A direct taxpayer-funded bailout would not only cost Americans tens of billions of dollars, it would fail to address the root drivers of Puerto Rico’s debt. Additionally, while some have proposed settling the $73 billion government debt by granting the island access to Chapter 9 bankruptcy or forcing the debt to be restructured, Congress must not do so. Changing the rules mid-game would be unfair to Puerto Rico’s creditors who entered into these arrangements with agreed upon terms and would delegitimize future transactions. Instead, Congress should consider pro-growth reforms that will spur economic development and investment in Puerto Rico.”

Puerto Rico, following the economic playbook of Paul Krugman, Bernie Sanders and Hillary Clinton, has buried itself under a mountain of debt. The bill has come due. Congress would be foolish to allow the island’s government to escape its obligations and create a dangerous precedent for other big spending states and municipalities.

The time has come for reform, not bankruptcy or a bailout. The only way the reform comes is if the big spenders have no other choice.